- Forms, Rates & Tables
- Continuing Professional Education
- Determination Letter
- Email Chief Counsel Advice
- Exempt Organizations Update
- Field Service Advice
- Forms and Instructions
- General Counsel Memoranda
- IRS Announcements
- IRS Fact Sheet
- IRS Forms
- IRS Legal Memoranda
- IRS Notices
- Information Release
- Internal Revenue Code
- Letter Rulings
- Revenue Procedures
- Revenue Rulings
- Technical Advice Memoranda
- Treasury Decisions
- Income Tax
- Transfer Taxes
- Case Studies
- Technical Reports
The Unraveling of Donor Intent: Lawsuits and Lessons
Gift restrictions have always been a component of charitable gift planning. While gift restrictions are not new, the increasing number of lawsuits filed by donors and their families to enforce gift intent represent an alarming recent trend. In this article, Kathryn Miree and Winton Smith discuss a number of cautionary tales that highlight the issues in gift purpose litigation.
By Kathryn Miree and Winton Smith
restrictions have always been a component of charitable gift planning.
In 1643, Lady Anne Radcliffe Mowlson created the first scholarship at
Harvard College. In 1887, Josephine Louise LeMonnier Newcomb contributed
$100,000 to establish Sophie Newcomb College of Tulane. And during
the Industrial Age, families such as the Rockefellers, Carnegies, and
Fords made gifts to address social issues, establish libraries, or for
similar directed purposes. Donor interest in gift restrictions continues
into the present as evidenced by Joan Kroc’s more than $1.5 billion
bequest to the Salvation Army to establish community centers across
the country and J. Ron Terwilliger’s recently announced $100 million
bequest commitment to Habitat for Humanity International, 70% of which
is committed to housing micro financing.
While gift restrictions are not new, the increasing number of lawsuits filed by donors and their families to enforce gift intent represent an alarming recent trend. By any measure, high profile lawsuits such as the recently-settled case involving the Robertson family and Princeton or the more recent case involving the Newcomb heirs and Tulane, replete with allegations of charitable misfeasance and malfeasance, damage philanthropy. This litigation trend can be stemmed if gift planners have a better understanding of the problems sparking the lawsuits and donors and charities have a better understanding of alternatives in resolving disputes.
Five Cases that Frame the
last ten years have yielded a number of cautionary tales that highlight
the issues in gift purpose litigation. While there are many more
lawsuits involving conflicts between donors (or descendants of donors)
and the charities they support, the following five cases provide some
perspective for the issues discussed herein.
1. William Robertson, et. al. v. Princeton University, et. al.2
Charles S. and Marie H. Robertson3 contributed $35 million in A & P stock to Princeton University in 1961 to create a supporting organization to fund the Woodrow Wilson School of Public and International Affairs “where men and women dedicated to public service may prepare themselves for careers in government service, with particular emphasis on the education of such persons for careers in those areas of the Federal Government that are concerned with international relations and affairs.”4 The Foundation, with assets of roughly $900 million in recent years, provided funds for the Woodrow Wilson School and also funded other budgets, including a $13 million principal distribution to build Wallace Hall, a building designed to house the expansion of the Woodrow Wilson School as well as the Sociology Department and other programs.
During his lifetime, Mr. Robertson grew unhappy with the Foundation’s spending patterns and the low numbers of students engaged in pursuit of diplomatic service, expressing his concerns in writing. The school dismissed his concerns explaining the world of diplomacy was no longer the same. Marie Robertson died in 1972 and Charles Robertson died in 1981. Their son William S. Robertson, his sisters Katherine Ernst and Anne Meier, and cousin Robert Halligan – also unhappy about the application of Foundation funds – filed a lawsuit in July 2002 to redirect funds to other universities that could fulfill the donors’ goals. The suit alleged the school intentionally violated the donors’ intent and further claimed Princeton was engaged in self-dealing with regard to the Foundation’s investments and distribution of funds. The lawsuit involved numerous depositions and other discovery, costing Princeton over $40 million in expenses through December 2008 when the suit was settled.5 The settlement required Princeton to transfer $90 million plus interest to the Foundation.6
2. Howard v. Administrators of the Tulane Educational Fund
From 1886 to 1901, Josephine Louise Newcomb contributed over $3.6 million to create the Sophie Newcomb College in Tulane University to advance “the cause of female education in Louisiana.” The gift, worth approximately $75 million in today’s dollars, established the first separate college for women in a university in the United States. After Katrina temporarily closed Tulane in the Fall of 2005, the Trustees voted to merge Newcomb College into Tulane and to absorb its endowment.
Two heirs of Josephine Newcomb – Parma Howard and Jane Smith – filed suit to enforce Ms. Newcomb’s intent in maintaining a separate college. The district court judge dismissed the Newcomb heirs’ lawsuit holding they had no standing to enforce the gift; 7 this ruling was affirmed by Louisiana Fourth Circuit Court.8 The heirs appealed, and on July 1, 2008, the Louisiana Supreme Court vacated the dismissal and remanded the case to the trial court to allow the descendants of Ms. Newcomb to proceed with the lawsuit to enforce the gift’s terms. In August 2008, a second lawsuit was filed in the district court of the Parish of Orleans by another Newcomb descendant, Susan Henderson Montgomery, also seeking to enforce the terms of the gift.9 Ms. Montgomery filed a Motion for Summary Judgment with the Civil District Court in New Orleans asking that the Court order Tulane to reinstate Sophie Newcomb College; however, the Judge denied Ms. Montgomery’s motion. In October, 2009, Ms. Montgomery announced she would appeal the Judge’s ruling.10 The case history and court filings can be found at www.newcomblives.com.
3. The Barnes Foundation’s Petition to the Orphan’s Court to Change Settlor’s Intent
Dr. Albert C. Barnes established the Barnes Foundation in 1922 to house his extensive Impressionist, Post-Impressionist and early Modern art collection (including many masterpieces with a collective current value of $6 billion) and to educate the working class about art. The collection – which was assembled and mounted by Dr. Barnes – was located in a modest structure in Merion, Pennsylvania, a Philadelphia suburb. Dr. Barnes arranged the paintings and designed the art education curriculum himself. He did not intend to have the entity operate as a traditional museum.11
Dr. Barnes died in 1951. In 1991, the trustees went to court to amend the Foundation’s governing documents which prevented the trustees from selling or loaning the art in the collection.12 While the lawsuit – which cost the Foundation about $10 million in expenses – did not result in a change in the Foundation’s by-laws, the Judge did allow the Foundation to take the art on tour raising about $16 million for renovations.13
In September 2002, the financially-strapped trustees filed another lawsuit seeking permission to move the art collection from the Merion building to a new building (to be constructed) in downtown Philadelphia; in addition, it asked the Court to allow it to expand the number of trustees from 5 – as designated by Dr. Barnes in the governing documents – to 15.14 In early 2004, the Court approved the increase in the number of Trustees, deferring the decision on the move until other options to raise funds were explored. Then, on December 13, 2004, the Court of Common Pleas of Montgomery County, Pennsylvania, Orphans’ Court Division granted the Trustees’ request to move the Foundation’s art gallery from Lower Merion Township, Pennsylvania to a new location in downtown Philadelphia. The court’s 41-page published opinion15 acknowledged the changes ran counter to the terms of the Foundation’s 1922 charter and governing documents but noted there was “no viable alternative” for the financially-compromised charity.16 An appeal to the ruling filed by an art student at the Foundation was dismissed by the Pennsylvania Supreme Court for lack of standing.17
4. Tennessee Division of the United Daughters of the Confederacy v. Vanderbilt University
In 1913, the Tennessee Division of the United Daughters of the Confederacy entered into the first of a series of gift agreements with George Peabody College for Teachers (“Peabody College”) to raise $50,000 for the construction of a dormitory, a portion of which would provide rent-free housing for students of Confederate ancestry. The agreements spelled out key restrictions on the gift, including the requirement the dormitory bear the name of “Confederate Memorial Hall.” The dormitory was completed in 1935, and for many years Peabody College, and Vanderbilt University following its merger with Peabody, abided by the terms of the gift. In 2002, however, Vanderbilt’s President decided to rename the building (feeling “Confederate” created a marketing problem for the University).
The United Daughters of the Confederacy, who were not consulted about or informed of the change, filed a lawsuit to compel Vanderbilt to honor the terms of the gift agreement. At trial, the court granted Vanderbilt’s motion for summary judgment finding the obligation to comply with the gift agreements was “impractical and unduly burdensome.” The Court of Appeals of Tennessee, however, reversed the trial court and upheld the gift agreement.18 It gave Vanderbilt two choices: 1) either abide by the terms of the agreements between the United Daughters of the Confederacy and Peabody College; or 2) return the present value of the original gift to the United Daughters of the Confederacy. Vanderbilt decided not to appeal the decision and to honor the gift terms.
5. Fisk University v. Georgia O’Keeffe Foundation
In 1949, Georgia O’Keeffe, the widow of Alfred Stieglitz (and executrix of his estate), transferred the Alfred Stieglitz collection of 97 photographs and paintings to Fisk University in Nashville, Tennessee subject to a restriction that Fisk University would not at any time sell or exchange the pieces of the collection. Ms. O’Keeffe then contributed four additional pieces that were part of her personal collection for a total of 101 pieces. In 2005 Fisk University filed a petition in the Chancery Court of Davidson County asking the court to invoke the legal doctrine of cy pres to permit the sale of two of the paintings in the college citing the cost of maintaining the collection and other financial needs. The Georgia O’Keeffe Foundation originally filed to block the action; in 2006, the Georgia O’Keeffe Museum filed a petition, granted by the Court, to substitute the Museum for the Foundation, alleging the Museum was Georgia O’Keeffe’s successor in interest and seeking through counterclaim to have the collection transferred to the Museum through right of reverter. In 2007, the Tennessee Attorney General was permitted to join the proceedings to protect the interests of the people of Tennessee.
A settlement with the Georgia O’Keeffe Museum involving a sale of several of the paintings was rejected, as was an outside offer from Crystal Bridges – Museum of American Art, Inc. involving the purchase of an undivided 50% interest that would allow the Crystal Bridges Museum and Fisk to share the college. In a pre-trial motion, the Court ruled the cy pres doctrine was not applicable because O’Keeffe had specific rather than general charitable intent when she transferred the collection to Fisk and that the Court had the power to order reversion if the Georgia O’Keeffe Museum could demonstrate Fisk breached the gift conditions. Following trial, the Court ruled that none of Fisk’s actions had yet violated the gift terms and imposed an injunction that Fisk comply with the gift terms. Fisk appealed,19 and in July, 2009 the Court of Appeals reversed the Trial Court’s determination the Georgia O’Keeffe Museum had standing to sue finding the Museum had no right of reversion in either the 97 pieces transferred to Fisk from Mr. Stieglitz’s Estate by Ms. O’Keeffe using her power of appointment, or the four pieces from Ms. O’Keeffe’s personal collection gifted to Fisk.20 The Court also found the Trial Court erred in dismissing the University’s petition for cy pres relief after determining cy pres was not applicable because Ms. O’Keeffe’s charitable intent was specific rather than general. The Trial Court did not determine cy pres relief was appropriate, but remanded the petition to the Trial Court for that determination.21
What Do The Lawsuits Have
each of these five cases is governed by a discrete set of gift agreements,
facts, and courts, there are certain patterns in these cases that may
provide help charities and their donors in analyzing options and avoiding
litigation. Since charitable organizations by definition hold the funds
subject to the gift terms, it is first important to examine the reasons
the charities holding the funds decided to change the gift terms.
|The Barnes Foundation||DAC/
|The donor had “general charitable intent” allowing some flexibility in interpretation of the gift terms rather than “specific charitable intent.”||
|The charity has substantially complied with the terms of the gift for a long enough period, and no longer has an obligation to comply.||
|The financial needs of the institution are so great that the terms of the gift must be changed||X||X||X||
|The property will be harmed if a change is not made to the conditions of the gift.||
|There are other charitable programs that are more important and need the funds||X||X||
|The terms of the gift were no longer convenient or appropriate||X||X||X||X||X|
|The costs to administer the gift are too great||
|The purposes of the gift are no longer appropriate||
is also important to note some of the common triggers prompting the
donor lawsuits. One common denominator was the charity’s decision
to change the terms of the gift through an internal process that involved
neither the donors nor the courts. The donors and/or their descendants
were not consulted or allowed input on the decision to make changes.
In the case of the Robertson’s, the donor expressed concern about
variance from the gift terms over his lifetime. These concerns
were apparently largely ignored. In the case of Vanderbilt’s relationship
with the Daughters of the Confederacy, the decision was treated as an
administrative matter that could be handled by the Chancellor and the
Daughters were not consulted. In the case of Tulane, The University’s
Board made a decision following a natural disaster without seeking advice
or input from the donor’s descendants, several hundred years after
the original donor’s death.
Issues for Donors and Their
Families in Enforcing Intent
the donor has completed a gift and either the donor or the donor’s
descendants learn the charity has taken actions that appear to violate
the terms of the gift agreement. Can that donor or descendants take
action? Effectively pursuing relief will likely require three
things: a written document clearly expressing the agreement between
the donor and the charity, standing to sue, and the resources to pursue
intent is a malleable concept; a written document provides clarity for
that concept. Without clear written gift terms, intent is difficult
to interpret several years down the road when the parties to the transaction
are unavailable and the charitable environment has changed. The
written document may include a written directive accompanying the transfer
of the gift, a gift through will or other recorded document, or a formal
gift agreement signed by both parties. Even documents have limitations.
Since the documents are generally prescriptive and direct how the gift
will be managed (rather than expressing the charitable outcomes from
the operation), the written instructions may not be sufficient to provide
absolute guidance to charities, courts, or descendants. The document
is, however, an essential starting point.
the party bringing suit against the charity to compel compliance with
gift terms must have standing to sue. Standing to sue, in the
broadest terms, means the individual or entity bringing a lawsuit against
another must have a nexus to the action or stake (harm or potential
harm) in its outcome. Without this nexus, the suit will not advance,
which is why many of the cases cited above focus on the issue of standing.
and their descendants do not necessarily have standing. For many
years, the rule in most state courts has been that a donor does not
have standing to sue a charitable organization to enforce a gift restriction.
This principal, arising from the common law, is based on the premise
the donor relinquishes all rights in the property when the gift is made.
In the leading case on this point, Carl J. Hertzog Foundation, Inc.
v. University of Bridgeport,22 the donor made a $250,000
gift to the University of Bridgeport designated for medical education
scholarships and was initially used to provide nursing scholarships.
The nursing school closed, the funds were diverted to another purpose,
and the donor filed suit seeking a temporary injunction, an accounting,
a reestablishment of the fund in accordance with the gift agreement,
or, a gift over to the Bridgeport Area Foundation.
trial court ruled the donors had no standing to sue. The sole
issue in the appeal was whether or not the Connecticut Uniform Management
of Institutional Funds Act established standing for a donor to bring
suit to enforce a gift restriction. While the appeals court reversed
the trial court finding the statute did give a donor standing, the Connecticut
Supreme Court disagreed concluding that the general rule at common law
was that a donor had no standing to enforce the terms of a completed
charitable gift unless the donor had reserved a property interest in
the gift (such as a right of reverter) which may bring himself and his
heirs within the “special interest” exception to the rule.23
The Court also recognized the rationale that the Attorney General is
the public official who has standing to protect the public in the case
of a restricted charitable gift.24
the courts seem to be reconsidering this issue, allowing donors to pursue
such lawsuits in some states. For example, a July 2003 lawsuit
filed in Amarillo, Texas by the Estate of Sybil B. Harrington and the
Amarillo Area Foundation (appointed by Ms. Harrington to oversee the
use of the funds) sought the return of $5 million from the Metropolitan
Opera in New York. Ms. Harrington had created a significant endowment
with the Metropolitan Opera to fund traditional opera, and the suit
alleged they had applied the funds for purposes outside that scope.25
The lawsuit was allowed to proceed.
a New York case, Smithers v. St. Luke’s-Roosevelt Hospital Center,
the court found the donor could proceed if she could demonstrate a special
relationship to the gift.26 The plaintiff’s husband, R.
Brinkley Smithers, gave $10 million to St. Luke’s-Roosevelt Hospital
Center in New York to create an alcoholism research and treatment facility
over a period extending from 1971 to 1983. On the facts, the Court concluded
the donor (or his family) was often in a better position than the Attorney
General to enforce gift intent. The Court held the donor’s widow
– and the Attorney General – should have “co-existent standing”
to bring suit.27 The hospital settled the lawsuit in July
2003, agreeing to transfer $6 million to another nonprofit to establish
a freestanding alcohol treatment center, and to restore $15 million
to the endowment.
California, the Court of Appeals allowed a donor to sue to enforce gift
terms for a gift that provided a “gift over,” or an alternate charitable
beneficiary, in the event the original gift terms were not met. In those
facts, the L. B. Research and Education Foundation made a $1 million
grant to the UCLA Foundation to create an endowed chair in Cardiothoracic
Surgery governed by a written grant agreement specifying the criteria
for the chair holder. In October 2003, L. B. Research Foundation used
the UCLA Foundation and the Regents of the University of California
for specific performance of the gift agreement alleging the funds had
been used for purposes other than those specified in the gift agreement.
The UCNLA Foundation and the Regents answered alleging the gift created
a charitable trust which only the California Attorney General had standing
to enforce, moving for judgment that the donor lacked standing to bring
the action. The trial court agreed, dismissing the suit, but the
Court of Appeals reversed determining the arrangement was contractual,
and that even if not contractual the plaintiff had a “special interest”
that allowed it standing. The Court further found the Attorney
General’s power to enforce charitable trusts under California law
(the defendants had argued the arrangement was a charitable trust rather
than contractual) was not exclusive.28
to Pursue Enforcement
with a clear written agreement and standing to sue, the donor or descendants
must have sufficient resources to pursue relief, especially when the
funds in question are large and the charity holding those funds has
extraordinary size and/or resources. The Robertson case is a perfect
example. The order settling that case held Princeton responsible
for the $40 million in attorney’s fees incurred by the Robertson family
over the years leading to trial. Few donor families have such
resources, and imaging state Attorneys General in states with tight
budgets to allocate such funds is unlikely.
Issues for Charities in
Addressing Change of Purpose or Function
It is almost inevitable that charities will experience a need to make changes to long-term gifts. The need for change may result for a variety of reasons. The gift’s purpose may no longer effectively support the charity’s mission; the cost to administer the gift may outweigh the charitable benefits of the gift or the lack of funds may cause harm to the gift property;29 or the charity’s needs have dramatically shifted so that the gift revenue is no longer needed (or no longer needed at the level provided). When problems arise, charities should understand the options for resolution. In order of facility, those include: 1) change of gift terms negotiated with living donors; 2) provision for change pursuant to the gift agreement; 3) relief under the de minimus provisions of the Uniform Prudent Management of Institutional Funds Act; or 4) court approved changes.
1. Negotiating change of purpose with living donors. While donors who make gifts relinquish all control over contributed property, the provisions of UMIFA and UPMIFA allow charities to negotiate a change of purpose in long-term gift agreements with living donors. This means charities with living-donor gift may have the opportunity to examine existing documents renegotiate gift terms to provide flexibility over time, a moderation of purpose, or an alternative purpose if they act in a timely manner. This approach not only honors donor intent, but positions the charity as accountable and a good steward for the gift’s life. It is also the option with the lowest expense ratio.
2. Making changes pursuant to terms of the gift agreement. If possible, gift agreements should contain flexibility to make non-judicial changes with an emphasis on the triggers for change and clear direction on how that decision is made. For planners, this adds an extraordinary drafting challenge since it is difficult to take the gift through a period of 10, 25, 50 or even 100 years without knowing the environmental, cultural, and economic changes that will occur over that time. The alternatives may include secondary uses for the gift at the same institution, a gift over transferring proceeds to a succeeding charitable institution, or other creative alternatives.
The document should designate individuals responsible for making changes to the gift purpose. This group may be the same group set out in the paragraph above (who determine it is time to make a change) or it may be a different group. The document should also designate the type of changes that are appropriate without court approval, and what to do if there is conflict among the appointed group. Placing discretion in a group qualified to make those decisions based on the facts and circumstances at the time is a principal used in multi-generational trusts and makes those trusts effective long after the grantor is there to make decisions.
3. Seeking relief under the Uniform Prudent Management of Institutional Funds Act (UPMIFA). In 1972, the Uniform Management of Institutional Funds Act (UMIFA) was adopted at the 1972 Annual Meeting of the National Conference of Commissioners on Uniform State Laws. UMIFA (and its successor UPMIFA), adopted in whole or in part by all states except Alaska and Pennsylvania, governs long-term funds held by charitable institutions. Section Seven of the model statute permitted a “release of limitations that imperil efficient administration of a fund or prevent sound investment management if the governing board can secure the approval of the donor or the appropriate court” and had four parts:30
- Restrictions can be released with the written consent of the donor.
- If the donor’s written consent cannot be obtained, a court of appropriate jurisdiction can release the restriction if the restriction “is obsolete inappropriate, or impracticable.”31
- A release cannot change the use of the funds to non-charitable purposes.
- The section does not limit the court’s application of the cy pres doctrine.32
expanded the power to release or modify donor gift restrictions in Section
6, allowing change under four circumstances:
- Donor release: “With the donor’s consent in a record”, the charity can release a restriction in whole or in part, so long as the gift is still used for the organization’s charitable purposes.34
- Doctrine of deviation: If a modification to a gift agreement/document will enhance the furtherance of the donor’s purposes, or a restriction is “impracticable or wasteful and impairs the management or investment of the fund”, the charity can ask a court to modify the restriction. The Attorney General must be notified and allowed to be heard, and the modification must reflect the donor’s “probable intention.”35
- Doctrine of cy pres: If the purpose or restriction becomes “unlawful, impracticable, impossible to achieve, or wasteful”, the court may use the cy pres doctrine to modify the fund purposes. The Attorney General must be notified and allowed to be heard.
funds: For funds with a value less than $25,00036 that
have been in place more than 20 years, court action is not required
if the charity determines a restriction is “unlawful, impracticable,
impossible to achieve, or wasteful” so long as the charity waits 60
days after notice to the state Attorney General of the intention to
make the change, and the change is designed to be a good faith reflection
of the expressed charitable purposes.37
current cases – and the stream of donor intent clashes reported in
the media – offer many valuable lessons for donors and charities involved
in creating and managing long-term gifts. As with most good lessons,
these principles are more practical than legal since the legal outcomes
vary depending on states courts and case facts.
Lessons for Donors
following five principles should offer guidance to donors who want to
create permanent gifts for charitable institutions.
- Planning is essential for the long-term effectiveness of gifts. The donor and the charity should make sure they understand donor intent, and the long-and short-term purposes of a gift. The exercise is not natural. Most of us shape our thinking by events, facts, and circumstances of today rather than attempting to envision changes of the future. For example, it might have been difficult for a donor in the 1950s who wanted to create an endowment to fund homes for unwed mothers to envision the social and cultural changes that would occur by the 1990s that eliminated the need for such hideaways for unwed mothers.
- Execute a clear written document governing the gift. If the gift is made through bequest, consider executing a gift agreement during life and incorporating that document by reference under the document governing the bequest.
- Remember, perpetuity is a long time. Many gifts – especially those created in endowment form – are doomed to outlast their gift purposes and terms. Social changes, economic changes, and even changes in the charity’s mission, make it almost impossible for a gift document to last fifty years, much less through perpetuity. The best gift agreement will anticipate the impossible to imagine. What if the program is discontinued? What if the charity is dissolved? What if the charity merges with another charity? What if the fund produces more than is required by the original gift purpose? What if the funds are no longer needed for that purpose? Who will make the decisions about how changes are to be made? Under what circumstances does the donor want changes made without judicial intervention? Every donor may have different answers to these questions, but they should be asked and answered. So while a gift agreement is critical to any long-term gift, in designing the gift it is less important for the donor to ask how to create “iron-clad” gift terms, and more important to consider the overall outcomes they expect the gift to have and alternative goals once the original purpose is no longer practical or possible.
- Rather than forming the gift in prescriptive terms – telling charities how they achieve the donor’s charitable goals – think in terms of outcomes and gift charities flexibility to achieve those outcomes in the most effective manner. Advisors should begin this process with donors. What does the donor hope to achieve? What are the measurable outcomes? Set benchmarks, consider the gift/need’s evolution and build in flexibility. Consider accountability, measurement of results, and reporting to the community to ensure the charity remains focused on the outcomes. There is one caveat. The accounting and reporting should be manageable so that it does not consume the majority of the gift’s revenue stream.
- Consider including a gift over or reverter to provide a solid legal platform to enforce the gift. While it is clear state courts are moving away from the common law rule denying a donor standing to sue, and towards a rule giving donors and their descendants the ability to enforce gift terms, results may vary from state to state.
Five Lessons for Charities
also have much to learn about the management of long-term gifts. Change in the effectiveness of a long-term gift is inevitable, although
it is always less clear how that need for change will manifest. The best approach for charities is to plan for change and manage those
changes wisely. Consider these five recommendations:
1) Develop standard
gift agreements for use in planning long-term gifts
that provide flexibility over time and encourage donors and their advisors
to use these agreements. The standard gift agreement should include either term-limits on donor
gift restrictions or make provision for change in the document subject
to certain triggers.
2) Review current
gift agreements with living donors to identify documents that may need
changes. It is far easier to craft solutions or alternatives
during the donor’s lifetime than to struggle with the options for
change after the donor’s death.
3) Once the gift
agreement (and amendments to the agreement) are complete, keep the documents
in a safe place. This seems obvious, but too many charities
are unable to put their hands on key donor documents even 20 years after
the gift – and have little chance of finding those documents after
50 or 100 years. Gift purposes become more a matter of folk lore
than legal reality. (Institutional policies are the smartest way
to ensure consistency.) Also keep records of planning sessions
and donor conversations. These contemporary recorded observations
may be valuable to later generations in interpreting donor intent. Some charities include these records as a part of board minutes (when
the gift is reported and accepted) because these records are retained
as a matter of law.
4) Adopt policies
and procedures governing long-term gift management that includes donor
stewardship, reporting, and the process for initiating gift changes. Stewardship involves engaging in regular communication with donors and
their families about the use and outcomes of the gift. Engaging
with lower generations helps build relationships that may later avoid
conflict. The donor’s descendants may not have the same goals,
objectives, or perspectives as the donor. In fact, they rarely
do. Sharing the donor’s conversations, goals, and regular reports
on how those objectives are met are powerful tools in managing expectations.
The policies should also create an internal committee to that provides
oversight of long-term gift management, and identifies problems early.
5) Avoid crisis management. When things begin to go bad – either because of disagreements with
family members or an unanticipated turn in the road – address the
issues early. In most cases, it will be beneficial to involve
family or original advisors to provide input about options. Problems
generally grow worse – and relationships deteriorate – when no action
is taken. Just deal with it.
gifts are a matter of planning. Donors need to carefully express
their goals and objectives and think long-term in the impact of their
gifts. Advisors should encourage donors to explore the long-term
use of the gift, design flexibility into the document, and discuss plans
with the charity before making the gift final. And charities should
develop standards with which to review long-term gifts, should encourage
the use of gift agreements (providing a format to advisors and donors),
and should remaining in ongoing communication with donors and their
families. If all parties to the process do their part, the courts
would have less business and there would be fewer cautionary tales to
warn off potential donors.
1. While some of these cases have reached a final resolution, others are still in the courts. The facts or resolution of these cases continues to change and thereader should check for updates before relying on the case status set out herein.
2. Docket No. C-99-02, Superior Court of New Jersey, Chancery Division: Mercer County
3. Mrs. Robertson was the daughter of the founder of the A & P grocery chain.
4. The language setting out the Foundation’s purpose is taken from its Certificate of Incorporation. To provide context, in 1961 the U.S. and Russia were engaged in a cold war, the United States was involved in Vietnam, and President Kennedy was asking American to: “Ask not what your country can do for you – ask what you can do for your country.”
5. Hathirimani, Raj, “Robertson Lawsuit Most Expensive in University History,” The Daily Princetonian, www.dailyprincetonian.com (November 19, 2004); the lawsuit was settled on December 10, 2008 and approved by the court on December 12, 2008.
6. “Robertson Lawsuit Settled,” http://paw.princeton.edu/issues/2009/01/28/pages/7658/index.xml.
7. Howard v. Administrators of the Tulane Educational Fund, unreported, Civil District Court, Orleans Parish, No. 2006-4200, Div. B-15.
8. Howard v. Administrators of the Tulane Educational Fund, 970 So. 2nd 21 (Ct. App. 4th Cir. October 22, 2007).
9. Montgomery v. Administrators of the Tulane Educational Fund, unreported, Civil District Court, Orleans Parish, No. 08-8619, Div. B-I.
10. This lawsuit is still unfolding and further developments may have occurred after this article was written. Please check for recent developments at www.newcomblives.com.
11. According to the Foundation’s press release the Foundation has a 3-year horticulture program, and a 2-year art and esthetics program with a 1-year seminar extension.
12. Solis-Cohen, Lita, Maine Antiques Digest, March 2004 http://www.maineantiquedigest.com/articles/mar04/barnes0304.htm.
15. The Barnes Foundation, No. 58,788 (12/13/04).
16. Blum Debra E., “Court Ruling Could Influence Restrictions Donors Place on Bequests,” The Chronicle of Philanthropy (January 6, 2005; “Court Allows Barnes Foundation To Move Collection to Philadelphia,” Nonprofit Issues, December 16, 2004 – January 15, 2005 <www.nonprofitissues.com/public/features/leadfree/2004dec2-IS....>
17. Blum Debra E., “Pennsylvania’s Highest Court Allows Multibillion-Dollar Art Collection to Move,” The Chronicle of Philanthropy (April 28, 2005).
18. Tennessee Division of the United Daughters of the Confederacy v. Vanderbilt University, 174 S. W. 3rd 98, 203 Ed. Law Rep. 396 Ct.App., 2005.
19. A copy of the appeal can be found on the Tenessean website at http://www.tennessean.com/assets/pdf/DN115593814.PDF.
20. Slip Copy, 2009 WL. 2047376, Tenn. Ct. App., July 14, 2009 (No. M200800723 COAR3CV).
22. Carl J. Hertzog Foundation, Inc. v. University of Bridgeport, 699 A.2nd 995 (Conn. 1997).
23. See Hertzog, 243 Conn. At 15, 669 A.2d at 999.24. This approach giving the state Attorneys General responsibility for protecting public interests, including charitable gifts, is well established. Conceptually, this prevents charities from having to defend countless lawsuits from individuals with only a tenuous relationship to the gift. As a practical matter, however, state budgets do not afford sufficient staff to the offices of the state Attorneys General to provide extensive oversight.
25. Wolverton, Brad, “Bequest to Metropolitan Opera Challenged,” The Chronicle of Philanthropy (August 7, 2003).
26. Smithers v. St. Luke’s-Roosevelt Hospital Center, 281 A.D.2d 127, 723 NYS 2d 426, 2001 N.Y. SplitOp. 02953 (App. Div. 1st Dept. 2001).
27. See Smithers, 281 A.D. at 140.
28. L. B. Research and Education Foundation v. The UCLA Foundation et. al., Cal. App. No. B176151 (6/14/2005), 130 Cal. App. 4th 171. The opinion is available at http://www.courtinfo.ca.gov/opionions/documents/B176151.PDF.
29. This may be because the restrictions require a level of accounting and administrative cost that becomes burdensome, or simply because the gift is so small that the cost to maintain discrete accounting is greater than the revenue generated by the fund.
30. Uniform Management of Institutional Funds Act (1972), Section 7, Comments.
31. UMIFA, 1972, Section 7(b).
32. Cy pres is a French term that means “as near as possible”; in this context, it means a court of equity has the power to alter use of the gift for a purpose as near as possible to the donor’s intent. This application could mean application of the funds to another charity if it is impossible for the named charity to fulfill the donor’s specified use of the gift. It can also mean application to another purpose if the original is impossible, impractical or illegal to fulfill.
33. This figure is constantly changing. Go to www.upmifa.org for an up to date report on the number of states that have adopted UPMIFA in whole or in part.
34. UPMIFA, Section 6(b).
35. UPMIFA, Section 6(c).
36. Some states have expanded this dollar amount to as high as $100,000 in enacting the model statute.37. UPMIFA, Section 6(e).
(ENDOWMENT) GIFT AGREEMENT
AGREEMENT made and entered into this ___ day of ____________, 20__,
by and between ________________________, hereinafter referred to as
the "Donor", and ABC Charity, a nonprofit corporation organized
and located __________, ___________.
W I T N E S
S E T H:
the Donor has transferred and delivered to ABC Charity the cash or property
set out on Schedule A of this document to be held, invested and reinvested
by ABC Charity in the manner set forth herein; and
ABC Charity has accepted the donation for the purposes and under the
considerations hereinafter set forth;
THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties do agree as follows:
donation is transferred and delivered to ABC Charity for the purpose
of establishing the ____________________ Fund (the "Endowment.")
and is to become an asset of ABC Charity and to be governed by the Articles
of Incorporation for ABC Charity, and By-Laws of that organization,
as amended from time to time.
original contribution and any and all additional gifts subsequently
transferred to ABC Charity either by the Donor or other interested contributors
shall be held, invested and reinvested in the manner hereinafter set
forth in paragraph 6.
3. The Donor requests that an annual distribution be made from the fund for the purposes described in paragraph 4. The amount of this annual distribution may be set by the Board of Directors of ABC Charity in accordance with a general endowment spending policy of ABC Charity. It is the intent of the Donor that the fund annually distribute a percentage of the annual market value of the fund (as determined by the Board of Directors), to include earned income and realized and unrealized gain, and that the corpus of the endowment will remain and grow in perpetuity.
4. The purpose of the Endowment is to [here insert the purposes for which the funds can be spent and specific programs if appropriate.]
5. Should ABC Charity lose its
status as an organization described in each of section 170(b)(1)(A),
section 170(c), section 2055(a), and section 2522(a), the Board of Directors
of ABC Charity shall distribute all assets remaining in the Endowment
to one or more organizations then so described to be used for the purposes
outlined in paragraph 4. Should the successor in interest lose
its status as an organization described in each of section 170(b)(1)(A),
section 170(c), section 2055(a), and section 2522(a), then all assets
remaining in this fund shall be distributed outright to one or more
charitable organizations then so described that have purposes as similar
as possible to those purposes listed in paragraph 4.
the purpose for which this Endowment is established cease to exist,
represent a need so that the Board of Directors are unable to find purposes
for the use of such funds, or become impractical or too difficult to
administer, then the Board of Directors, by majority vote, shall have
the power to redirect the funds held in this Endowment for a purpose
or purposes as similar as possible to the original intent of the Donor.
Charity hereby accepts the property contributed to the Endowment and
will hereafter invest it in accordance with the investment policies
and procedures of ABC Charity. ABC Charity in its sole discretion
is authorized to sell, exchange, or otherwise dispose of any securities
or other property held by it at any time hereunder and to deliver such
instruments as may be required by either a transfer agent, exchange,
or other entity effecting such transfer. These assets may be pooled
with other like assets in order to facilitate an orderly and cost effective
management of assets for the organization. In addition, assets
held by ABC Charity may be transferred to a Foundation created to support
ABC Charity and its programs (upon a vote of its Board of Directors)
if such transfer facilitates an orderly and cost effective management
of assets. ABC Charity is authorized to use such methods as it
deems necessary or advisable for the investment, sale, exchange, or
transfer of any security held hereunder and to pay reasonable compensation
and expenses in connection with the performance of said services.
ABC Charity shall have the sole power to determine its investment policies
and procedures and to decide any and all questions in connection therewith.
Charity may hire agents to provide investment advice, administrative
management, and tax preparation as are reasonable and necessary to carry
out its duties. Fees and expenses for these services shall be
charged first against the income of the Endowment, and then the fund
principal on a pro-rata basis against all funds held in ABC Charity
together with any necessary administrative costs of ABC Charity in managing
Agreement shall be irrevocable and the Donor hereby expressly acknowledges
that he/she shall have no right or power either alone or in conjunction
with others and in whatever capacity to revoke or terminate this Agreement;
provided, however, nothing herein contained shall be interpreted so
as to prevent the Donor from making further contributions to this Endowment.
funds managed by ABC Charity are exempt from the registration requirements
of the federal securities laws pursuant to the exemption for collective
investment funds and similar funds maintained by charitable organizations
under the Philanthropy Protection Act of 1995 (PL 104-62). Information
on the investment of those funds was provided to the Donor upon execution
of this document.
constitutes the full and complete agreement by and between the parties
and all oral agreements and/or discussions are merged herein and are
null and void to the extent that they are in conflict with the terms
of this document. In no event shall this Agreement be treated
or interpreted as creating a separate trust. No changes, alterations,
additions, modifications, or qualifications shall be made or had in
the terms, conditions, or provisions of any paragraph or item of this
Agreement. Nor shall any amendment, modification or alteration
be permitted that would result in this Endowment being treated as a
separate trust or that would affect the status of ABC Charity as an
organization described in Section 501(c)(3) of the and as an organization
which is not a private foundation within the meaning of Section 509(a)
of the Code.
Agreement shall be governed by, and construed under, the laws of the
State of _____. Jurisdiction and venue for all purposes shall
be in the appropriate County of the State of _____.
Agreement is binding upon the parties hereto, their successors and assigns.
TESTIMONY WHEREOF WITNESS the signatures of the parties hereto the day
and year first above written.
Executive Director Date
Kathryn W. Miree is the president and primary
consultant for Kathryn W. Miree & Associates,
Inc., now in its 11th year of operation. Ms.
Miree provides a full range of planned giving,
endowment, and foundation management services
designed to help charities build long-term
financial stability through planned gifts and
endowment. Ms. Miree received a B.A. from Emory
University and a J.D. from the University of
Alabama School of Law. She spent 15 years in
various positions in the Trust Division of a
large southeastern bank rising to the position
of Senior Vice President and manager of the
Personal Trust Department. She then joined a
regional brokerage firm to establish its trust
company and serve as its initial President and
CEO. In these positions she worked extensively
with not-for-profit organizations and their
donors in the management of private foundations,
community foundations, charitable trusts, pooled
income funds, gift annuities and endowments.
Ms. Miree is a past president of the national Committee on Planned Giving, past president of the Alabama Planned Giving council, past president of the Estate Planning Council of Birmingham, and past president of the Alabama Bankers Association Trust Division. She is a member of the Alabama Bar Association and Birmingham Bar Association.
Ms. Miree is also an active member of her community serving as a volunteer on a number of community boards. She is a past chair of United Way of Central Alabama, a past chair of The Altamont School and past president of the Independent Presbyterian Church Foundation.
Ms. Miree is a nationally recognized speaker and author on nonprofit gift planning and administration topics.
Winton C. Smith, Jr., J.D. is a practicing attorney who specializes in estate tax strategies and tax planning, financial development and planned giving for charitable organizations. His background includes more than 20 years of practical experience in structuring and marketing major gifts. He represents both individual philanthropists and charitable institutions, keeping them informed of the latest tax law changes affecting charitable gifts.
Winton's ability to present the many complex subjects involved in charitable giving in an easy-to-understand manner sets him apart from other lecturers. He conducts the Council for the Advancement and Support of Education (CASE) Planned Giving Institute in various cities across the country each year, and is the only CASE presenter to consistently receive top ratings for his delivery of the course, "Introduction to Planned Giving."
Winton has been a frequent speaker at programs sponsored by the National Council on Planned Giving (NCPG), the National Society of Fund Raising Executives (NSFRE) and the Association for Healthcare Philanthropy (AHP). He regularly presents charitable tax strategy seminars and workshops for bar associations, estate planning councils, colleges, universities, law schools and hospitals, as well as natural resource and conservation, religious, social welfare and other charitable organizations. Winton's programs on charitable gift planning have been approved for continuing education credit by State Bar Associations and State Accountancy Boards.
Copyright 2009. Kathryn Miree and Winton Smith. Used by permission.